Rio Foresees China’s Yearly Steel Output Hitting 1 Billion Tonnes in the Next 20 Years Despite Slowdown in Demand

Despite cooling demand from China for steelmaking ingredients, Rio Tinto (ASX: RIO) forecasts Chinese steel output would still hit 1 billion tonnes in the next 20 years.

Vivek Tulpule, chief economist of Rio Tinto, said the rise by one-third from current production levels is based on the ongoing slowdown in demand which will nevertheless result in higher output from the present 732 million tonnes.

Mr Tulpule said the lower demand for steel as China shifts to a consumption-led economy would cut the proportion of steel demand for construction use to 38 per cent by 2030 from 53 per cent in 2010. However, demand from the industrial sector is projected to rise to 41 per cent from 36 per cent for the same time periods.

After 2030, the Rio official projects that demand growth for steel would shift to other Asian nations such as India and Indonesia.

Iron ore made up 43 per cent of Rio's revenue in the first six months of 2012, while aluminium contributed 17 per cent and copper 11 per cent. Rio estimated it would produce 250 million tonnes of iron ore for 2012.

To boost Rio's iron ore production capacity in Pilbara to 333 million tonnes by 2015, the world's second-largest iron ore exporter approved a spending budget of $22.4 billion on iron ore projects.

Despite the rosy projects, Australian mining firms would have to contend with the decline in global demand for resources causing cancellation of projects and profit downgrades as the country's mining industry enters a post-boom era.

On Friday, two groups that service the mining sector disclosed cancellation of contracts with large mining companies while Orica announced a $367 million write-down.

Due to the $44 million Rio contract cancellation, the Diploma Group would no longer build 244 single rooms for Rio's fly-in, fly-out workers near Tom Price in Pilbara. Equipment leading group Emeco said that due to lower-than-expected hiring rates in Australia, the company shipped trucks to Chile to lease to mining companies. Emeco reported a 66 per cent utilisation rate for its fleet from 76 per cent in August, way below the average 91 per cent for the first half of 2011-12.

It explained the lower utilisation rates to non renewal of contracts by two goldmines in Western Australia and similar action form coalmines in New South Wales and Queensland.

Orica wrote down the value of its Minova equipment division which cut its profit to $400 million.